EADS Says A380 Jet to Be Delayed a Year

Laurence Frost On Oct 4, 2006
Source: AP Business Writer

Airbus parent EADS said Tuesday that the flagship A380 superjumbo jet will be delayed for another year and Virgin Atlantic and Emirates - the plane's biggest customer - hinted that the new setbacks could lead to order cancelations.

In a statement issued after its second board meeting in four days, EADS said the latest delays will cut an extra 2.8 billion euros ($3.6 billion) off operating profit and announced a restructuring plan to cut costs and boost productivity at Airbus.

Airbus sees "no significant signs" that cancelations are likely from any of its A380 customers, CEO Christian Streiff said during a conference call with reporters and analysts. "Until now, everybody's still on board."

But Dubai-based Emirates signaled that its bumper 45-plane order, worth over $13 billion at list prices, could be in doubt after suffering a further delay of 10 months.

"This is a very serious issue for Emirates and the company is now reviewing all its options," Chief Executive Tim Clark said in an e-mailed statement.

Virgin Atlantic Airways Ltd. spokesman Paul Charles said the carrier will be reviewing its six-plane order at an Oct. 12 board meeting, with "all options" on the table. "The depths of the delays have serious implications," he said.

But Air France and Lufthansa said they were still committed to the plane despite a new one-year delay to their deliveries.

While Air France "can only regret" the latest delays, the airline said in a statement, they will have no impact on its growth strategy.

"We're still convinced that the A380 is a success story and the A380 is a growth aircraft," Lufthansa spokeswoman Stefanie Stotz said.

Airbus CEO Streiff reiterated Tuesday that the latest production holdups - which leave the program two years behind its original schedule - were caused entirely by problems with the installation of the 300 miles of wiring aboard each plane. "This is the only weak link in the production chain," Streiff said.

Emirates, which had originally been scheduled to take delivery of an A380 this month, will receive the first plane 22 months late. Lufthansa now expects to get its first A380 between May and September 2009, and Air France said its first delivery has been pushed back to the second quarter of 2009.

Airbus has been discussing the latest holdups with airlines in recent days as it tries to gauge the likely compensation bill. EADS had confirmed last month that the plane would be delayed a third time, without giving details.

EADS shares had plunged 26 percent on June 14 after Airbus announced a second delay of six months to the 555-seater A380 and a 2 billion euro ($2.6 billion) profit warning. Tuesday's announcement takes the total financial impact of program delays to 4.8 billion euros ($6.1 billion) over four years.

The world's largest passenger jet has so far won 134 orders from 14 airlines and leasing companies and a further 25 for its freighter version.

The June revelations led to the sacking of Airbus boss Gustav Humbert and EADS co-CEO Noel Forgeard - who remains under investigation by market authorities after it emerged that he exercised stock options to make a profit of 2.5 million euros ($3.2 million) just weeks before ordering an internal probe into the production problems.

Airbus said Tuesday that A380 launch customer Singapore Airlines will receive its first jet in October next year - the only delivery promised for 2007. Until recently, Airbus had maintained that the first superjumbo would be delivered to launch customer Singapore Airlines by December this year, on schedule.

In June, Airbus had already slashed its delivery targets to nine planes from 25 in 2007; to 28 from 35 in 2008; and to 40 from 45 in 2009. EADS further reduced those forecasts Tuesday, pledging 13 deliveries in 2008 and 25 in 2009.

The defense group confirmed that it now expects to make a loss on some of the Airbus A380 sales contracts, warning of a 600 million euros ($760 million) charge this year to cover those losses. The A380 program will not generate positive operating earnings until 2010, EADS predicted.

The ripple effect of the fresh A380 delay is likely to hurt the group's industrial shareholders and to benefit U.S. rival Boeing Co., which is developing a 400- to 500-seat version of its 747 jumbo to compete with the A380.

German automaker DaimlerChrysler AG - which owns 22.5 percent of EADS - said it will review its own operating profit guidance as a result of the Airbus problems. Shares of Boeing rose $1.81, or 2.3 percent, to close at $81.78 on the New York Stock Exchange.

EADS also announced the launch of a new cost-cutting program to counter the impact of A380 delays as well as the weaker dollar and growing competition from Boeing. EADS gave few details of the plan but said it aims to generate annual cost savings of 2 billion euros ($2.6 billion) from 2010.

Management oversight of Airbus is also being tightened up at EADS - expected soon to buy the 20 percent of the aircraft maker that it does not already own from Britain's BAE Systems PLC. BAE shareholders vote Wednesday on a management recommendation to go ahead with the 2.75 billion euro ($3.5 billion) sale.

Shares in European Aeronautic Defence and Space Co., which had fallen recently in anticipation of the A380 delays, closed 1.1 percent higher at 22.65 euros ($28.85) in Paris before the company's statement, but after those issued by Emirates and Lufthansa.

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